Fix the leaks

Don’t pump water into a leaking tank#

Investing on top of an overdraft is like adding horsepower to a car with a flat tyre. Feels fast. Gets you nowhere.

This level has four steps, and the order matters. Don’t skip ahead.

Step 1: the emergency fund#

An emergency fund is cash for the stuff that goes wrong: a lost job, a broken boiler, a dead laptop, a dental bill.

The usual rule is three to six months of expenses. Take your monthly spending from level 1 and multiply.

• Three months if your income is stable, you have no dependants and low fixed costs.
• Six months if you’re self-employed, the only earner, or your income swings.

Park it in a separate, instantly accessible savings account, in the currency you pay your bills in. Anywhere in the EU, the deposit guarantee scheme covers up to €100,000 per depositor and bank, so the country of the bank matters less than the fact that it’s a bank. Not in shares. Not in your current account either, where it quietly blends into daily spending. Its job is to be there, not to earn a return.

And it does one more thing: it protects your investments. People without a buffer have to sell shares when life happens. And life has a talent for happening exactly when markets are down.

Step 2: kill expensive debt#

List every debt with its balance and its interest rate. You already collected them for your net worth, so this is copy and paste.

Then sort by interest rate, highest first. Overdrafts, credit card balances and buy-now-pay-later plans usually sit right at the top.

Pay the minimum on everything, and throw every spare euro at the debt with the highest rate. When it’s gone, move on to the next one.

Governments handle this differently: they roll the debt over forever and hand the bill to people who can’t vote yet. You don’t have a central bank in the basement, so you’ll have to pay yours back.

A mortgage or a cheap student loan is a different animal. If the rate is low and the term is long, you can invest alongside it. Where I’d draw the line: anything that costs more than you can realistically expect from a diversified portfolio goes first.

Step 3: find the fee leaks#

Fees look tiny because they’re quoted in percent per year. That’s not an accident. They’re charged on your whole balance, every year, whether the product delivers or not.

Guess first

€300 a month for 30 years at 6% a year before costs. How much more do you end up with at 0.2% annual cost than at 1.8%?

Show me

The usual suspects:

• Actively managed funds: an annual charge, often plus a sales fee when you buy.
• Insurance-wrapped investments: pension or life policies that put funds inside an insurance contract. Every country has its own flavour, usually with a tax perk printed on the front and the costs printed nowhere. You pay for the wrapper, the sales commission and the funds. Three bills, one product. Your bank calls this advice. I call it a sales pitch with a plant in the corner.
• Accounts and custody: monthly account fees, custody fees, card fees.
• Dead subscriptions: not an investment fee, but the same mechanism.

Your savings plan has different numbers. Put them in.

So dig out the cost information document of every product you own. For funds and insurance-based investments sold in the EU, that’s the key information document, and the provider has to give it to you. For funds, you want the ongoing charge per year. For insurance products, ask the provider for the total annual cost in percent and the current surrender value. If the answer gets vague, that’s an answer too.

Step 4: automate#

Willpower is a bad system. A standing order is a good one.

Set up transfers for the day after payday:

1. To the emergency fund, until it’s full.
2. To the debt with the highest rate, until it’s gone.
3. Later, to your investment plan. That comes in level 4.

Whatever is left in the current account is yours to spend. No guilt, no budget app. You pay yourself first and live on the rest.

When a step is done, point the transfer at the next one. Otherwise the freed-up money vanishes into daily spending, and you won’t even notice where it went.

This lesson is education, not investment, tax or legal advice.

Next level: the tank is tight, so it’s time to meet the engine – compounding, shares and ETFs.

Mission

• Work out your emergency fund target: monthly spending times three to six
• List all debts with their interest rates and mark the most expensive one. That’s your first target
• Look up the annual cost of one fund or insurance product you own and enter it into the fund fees calculator
• Set up one standing order for the day after payday

Quiz · 3 questions

Q1 Where does an emergency fund belong?

In a global equity fund, so it growsIn a separate savings account you can access at any timeIn your current account, right next to the pizza budget

Q2 You have €2,000 in savings beyond your buffer and a credit card balance at a high interest rate. What comes first?

Invest the €2,000 and pay the card off slowlySplit it evenly, so everybody’s happyPay off the credit card

Q3 Why does an annual fee of 1.8% matter so much over decades?

It’s charged only once, when you buyIt reduces your contributions, not your returnsIt’s charged on the whole balance every year, so the loss compounds

Sources#

• European Commission – deposit guarantee schemes: deposits protected up to €100,000 per depositor and bank
• European Commission – key information documents for packaged retail and insurance-based investment products (PRIIPs)

level 2

Done reading?

Tick the mission, answer the quiz, then claim your XP. Or just claim it, I’m not your teacher.

Complete level · +100 XP Level 3: The engine

Education, not advice. I don’t know your situation, and past returns promise nothing. Check my numbers, then make your own call. You’re a grown-up.